MELBOURNE has become the premier destination for international retailers looking to launch their flagship brands in Australia, according to the Australian Property Institute (Vic) Retail Update, in conjunction with Colliers International and Fitzroys.
API (Vic) president Aldo Galante said Melbourne’s CBD is buzzing with activity with the new Emporium’s official opening in August, along with the new Top Shop and Victoria’s Secret, H&M at the nearby GPO Building.
He added that the entry of international retailers is providing a further boon for the CBD’s main strips in Collins St, Swanston St and the QV offering.
Colliers International national director research Nerida Conisbee said Melbourne has emerged as the premier location for international retailers.
“By the official opening we will have seen international majors Top Shop, Victoria’s Secret, Calvin Klein, Uniqlo, Adidas, and a host of others having opened their doors in the complex,” she added.
Fitzroys director Ray Berryman said Emporium is an exciting development, which will prove to be a missing link in the Melbourne CBD’s retail landscape once fully launched in August.
“Emporium will power the CBD retail rather than drain the competition. In recent weeks we’ve seen Australian fashion icon Gorman take up space on Swanston St, as well as Japanese eatery Sakura Kaiten Sushi take out a new lease directly opposite Emporium on Lonsdale St.
“Other retailers such as Italian labels Gucci and Emernegildo Zegna have both recently announced expansions of the CBD presence,” he added.
Berryman said there is anticipation that Emporium may instead have an impact on destinational majors, such as Chadstone shopping centre, but not the typical suburban strips.
“Destinational majors continue to evolve, however, and this is vital in attracting some big name retailers. Uniqlo has just leased 1,132 sqm at Chadstone after opening their flagship store at Emporium,” he continued.
Galante said that Melbourne’s strips were stabilising after a strong period on both the sales and leaning fronts.
According the API report, the current average gross rents for prime Melbourne CBD space are $7,750 per sqm, with super prime positions fetching upwards of $9,000 per sqm.
Meanwhile Conisbee said national rental growth in the CBD precincts was varied during 2013. Overall, national retail CBD rents have grown by just 2% for the year.
“This is unsurprising given the softness in discretionary spending that was experienced during the first eight months of 2013, and below average levels of consumer confidence,” Conisbee said.
She added that all Australian markets have witnessed increasing incentives over the last three years.
“It was not uncommon in 2011/12 to see no incentives on offer within the CBD precincts. However, current incentives across CBD retail are now reaching as high as 20%, although the most common range is 10-15%,” Conisbee said.
Berryman said international retailers are not focussed exclusively at the CBD and are starting to explore suburban strips, with Marimekko, Diesel and West Elm taking space in the Chapel St precinct.
He said the suburban strips have recently gone through a strong period, with a pick up in leasing.
“However the next quarter will probably see leasing come off in suburban strips as tough economic conditions continue to have an effect.
“Strips with rents typically between $40,000 and $60,000 per annum will be more likely to remain stable, whilst higher rent strips such as Chapel St, South Yarra will probably be more volatile,” Berryman said.
“There are some local chains also considering further expansion, however. As in the CBD, there has been a shift in enquiry from food-based retailers back to fashion and discretionary throughout the suburbs, with discretionary spending witnessing some increase,” he said.
On the transaction front, Conisbee said in excess of $10 billion of available capital, both domestically and internationally, are chasing major retail centres.
“This is on the back of investment activity in the retail sector reaching record levels in 2013, with $7.35 billion worth of property sold across the nation,” she added.
Conisbee said there continues to be a high degree of competition for quality retail assets, particularly for core and core-plus product.
“Records continue to be set in 2014, with the largest single asset transaction so far this year being the sale of a 50% share in Melbourne’s Northland shopping centre for $496 million. This is Australia’s biggest post-GFC shopping centre transaction.
“The deal highlights the growing demand for ‘fortress-style’ assets, with limited opportunity to purchase assets of this size and quality,” she said.
The most recent major transaction in the Melbourne CBD was the sale of the iconic Block Arcade for circa $100 million in April.
Berryman said many offshore interests are also looking beyond the CBD for shopping strip investments.
“Stock has been well-received with competitive sales processes. Supply has been constrained, especially in the premium strips which have been very tightly held since the beginning of 2013, and will remain so throughout this year,”
In 2013 there were no sales registered in Puckle St, Moonee Ponds and Malvern Rd, Hawksburn Village, whilst there were only two sales registered in Acland St, St Kilda; Toorak Rd, Toorak and Douglas Parade, Williamstown. There were only three sales in the blue-ribbon locations of Church St, Brighton and Glenferrie Rd, Malvern.
Church St, Brighton saw sale yields as low as 2.6% last year, and this year has consistently seen tight yields again of 3.1% and 3.7%.
“Demand from local and overseas investors is evident, seeking well-located retail investment assets throughout Melbourne.
“Just in the past fortnight an offshore investor snapped up a double-height Toorak Village retail shop that Fitzroys put to auction, tenanted by fashion retailer Christensen Copenhagen, for $1.848 million reflecting a healthy 5.6% return.” Berryman concluded.
Property Review
